Make this the last year that millionaires stop paying into Social Security before the rest of us
It’s become a yearly ritual. Every February, we mark the date that millionaires stop paying into Social Security for the rest of the calendar year. Anyone earning $1,000,000 in annual wages hits the Social Security payroll tax cap on Feb. 23, while the rest of us continue to contribute to the program through the end of year. This is fundamentally unfair, and the public knows it. The longer we wait to adjust the payroll wage cap, the worse for Social Security and its beneficiaries. This year, Congress has a real opportunity to take action, if it has the political will.
The payroll wage cap for 2022 is $147,000. Capping payroll taxes according to wages deprives Social Security of much-needed revenue. The Social Security trust fund reserves are projected to become depleted by 2034 if Congress doesn’t act to prevent it. Contributions have been capped since Social Security was enacted 86 years ago. But in the ensuing decades, rising income inequality has pushed more and more people above the payroll wage cap.
In years past, 90 percent of wages earned in this country fell below the cap. Today only 83 percent of those earnings are subject to the Social Security payroll tax. Most Americans pay 6.2 percent of their wages into Social Security. But the effective tax rate for the wealthy is significantly lower, in some cases as little as .08 percent. As the Center for Economic Policy Research observed, “The burden of Social Security taxes falls more heavily on those who make less.”
While Social Security benefits are progressive — with workers on the lower rungs of the ladder receiving proportionately higher benefits — this should not excuse higher earners from paying their fair share. The pandemic has brought this discrepancy into sharp relief. First of all, Social Security has proven its worth anew as a financial lifeline for seniors, disabled workers and survivors laid low by COVID-19. If anything, their benefits need to be expanded to meet today’s economic realities. But if the trust fund is allowed to become insolvent in a little more than a decade, beneficiaries will face a 22 percent cut in benefits.
Meanwhile, the past two years have greatly benefited America’s wealthiest, who contribute the least percentage of their income to Social Security. The group Patriotic Millionaires, which favors scrapping the payroll wage cap, says the very wealthy have had “a financial field day” during the pandemic. The group reports that America’s 740 billionaires increased their combined wealth by no less than $2 trillion over the past two years, “at the same time that incomes for 99% of humanity fell.”
High wage-earners clearly can afford to pay their fair share into Social Security, something that is not lost on America’s seniors and their families. In public polling during the past decade, a majority of Americans have favored eliminating the payroll wage cap. A new survey of the National Committee to Preserve Social Security and Medicare’s members and supporters indicates 96 percent support for raising the cap. Survey respondents were unequivocal in their comments:
“Eliminate the wage cap! It’s common sense.”
“Make them pay their fair share!”
“The wealthy should pay Social Security taxes on everything they earn – just like we do.”
“There should not be a cap at all!”
We have been urging Congress to lift the wage cap for years. This year, there is a glimmer of light at the end of the tunnel. Rep. John Larson (D-Conn.) has re-introduced his Social Security 2100 Act, adding the words “A Sacred Trust” to the end of its name (to echo President Biden’s convention speech calling Americans’ earned benefits a “sacred obligation”).
Larson’s bill would adjust the cap so that annual wages exceeding $400,000 per year would be subject to Social Security payroll taxes. Under this provision, higher earners would pay the same rate on wages above the new cap as someone earning $50,000 a year. This would impact only the top 0.4 percent of wage earners. The “Sacred Trust” bill would extend Social Security’s solvency and boost benefits across-the-board, in addition to special enhancements for society’s most vulnerable — the poor, widows and widowers, and the “oldest of the old.”
Social Security 2100 has some 200 co-sponsors (all Democrats). A floor vote in the House would force those Republicans who pay lip service to protecting Social Security — but insist on benefit cuts — to go on record for the first time in decades. (Congress has not enacted comprehensive Social Security reform since 1983.)
We say: it’s about time. The right path for lawmakers is not to cut benefits, but to expand them to meet the needs of seniors, workers with disabilities and their families. The fairest way to fund such an expansion is by finally asking high earners to pay their fair share. If this wasn’t an obvious course before the pandemic, it certainly is now.
Max Richtman is president and CEO of the nonprofit National Committee to Preserve Social Security and Medicare. He is former staff director of the U.S. Senate Special Committee on Aging.
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